Post Pandemic, Home Ownership will require New Incentives, Promotions and Protections

Post pandemic, federal and state governments must provide additional protections and incentives to American citizens to buy primary residences. In doing so, retirement savings and investment in primary residence must be promoted simultaneously and economically interchangeably.

1. Restrictions on Foreign Home Ownership -– Since there is a real shortage of affordable homes in the US, foreigners must not be allowed to penetrate that segment of the housing market. Ideally, foreigners should be allowed to compete for the expensive-to-upscale homes only. Of course, that sector varies from market to market, so each state should regulate the price level and the corresponding inventory. Upon approval, the MLS and other sales agencies should allow the listing of those homes, clearly specifying "Open for Foreign Buying." Again, while the foreign buyers should be allowed to buy American homes, they must be prevented from competing for the inventory that the middle-class Americans demand. Since credit reports may not be available for them, a meaningful vetting process must also be established.  

2. Penalty and Tax-free use of Retirement Funds -- One of the primary obstacles to homeownership for the younger generation has always been the access to the required down payments and closing costs, which the primary mortgages do not finance. To incentivize the younger generation into buying primary residences, they should be allowed to use funds from their IRA, 401(K), Pension and Deferred Compensation plans totally penalty-and tax-free to finance down payments and closing costs, which will simultaneously incentivize retirement savings and homeownership. Since most 401(K)s also come with some employer matching, the required down payment accumulation will be further accentuated.  

3. Introduce Million-dollar Home Sales Surtax -– Since the upscale and expensive homeowners would be a big beneficiary of the phase-out (followed by no property taxes), the million-dollar home sales must be subjected to additional progressive surtaxes. It must not be a one-size-fits-all blanket rate; instead, it must be progressive given the savings – for example, sale price $1M to $2M @2.00%, $2M to $3M @2.25%, $3M to $5M @2.50%, $5M to $10M @2.75%, $10M+ @3.00%, etc., etc. While eliminating property taxes will make the high-end housing market more liquid, the introduction of sales surtax (coupled with higher short-holding transfer taxes) will gradually de-incentivize gamers, stabilizing this volatile segment. 

4. Higher Transfer Taxes for Gamers and Flippers -– At the point of sale, shorter holding periods (say, up to 2 years) must carry much higher transfer taxes, so the traders and flippers are separated from the homeowners. It's a clear moral hazard case when primary homeowners and gamers are treated alike by the local assessors. While gamers are entitled to compete and buy, they must be treated as investors if they sell within the shorter window. Of course, certain consumer exceptions (e.g., job-related relocation, medical emergency, etc.) must be factored in as long as the use of home as primary residence could be proven. 

5. Higher Sales and Transfer Taxes on Income-producing SFRs –- In terms of sales and transfer taxes, single-family homes occupied as primary residences must be treated differently from investor purchases for conversion to rentals. At the point of sale, those investors must pay higher sales taxes (add-on sales surtax). During the last recession, many institutions bought and converted millions of single-family homes into rentals creating a whole new "SFR Rental" industry. Unlike people's primary residences, these are income-producing properties and must be treated as such. Even during the years of property tax phase-out, they must be treated as a sub-class of the multi-family and must pay higher sales, property, and transfer taxes than the primary residences.

Stay safe!

-Sid Som

homequant@gmail.com

Link to the Book

Post Pandemic, Congress should Introduce "Medicare at 62"

There is no denying that the pandemic will bring about significant changes in many aspects of our lifestyle, including the decision to opt for early retirement.

Unfortunately, while the first qualification age to trigger Social Security benefits is 62, the qualifying age for Medicare is 65 (with certain exceptions), thus forcing millions of willing retirees to wait until the Medicare kicks in at 65 to avoid having to walk into the expensive COBRA/health insurance trap. 

Therefore, Congress should seriously consider lowering the Medicare age to 62 for all Social Security-eligible employees to allow and incentivize early retirement. So, what are the potential advantages? Let's consider these:

1. The Simultaneous Trigger of Social Security and Medicare at 62 will allow Willing Employees to Retire from "Full-time" Workforce at 62 – This will free up millions of jobs. Again, to qualify for the proposed "Medicare at 62," one must simultaneously trigger the Social Security benefits at 62, thereby ensuring permanent retirement from the "full-time" workforce. Of course, if one decides to return to the full-time workforce later, one must return all of the benefits earned (in line with the current Social Security law). Should the new retirees, from time to time, need to supplement social security incomes, they will have access to many of the part-time jobs the recent graduates would leave behind, leading to a very healthy and complementary continuum. 

2. The Simultaneous Trigger will Open up Millions of Jobs for New Graduates – Since most people retire from "long-held" jobs, those jobs tend to be "career" jobs. Most companies try to fill the long-term career jobs with new graduates, via their 1-to-3 year training programs (e.g., engineer trainee, management trainee, analyst, and research trainee, marketing trainee, etc.). Also, in today's fast-changing technological environment (as AI and Robotics have already taken over), the new engineering graduates are far more critical for the labor force than their senior counterparts, most of whom need extensive retraining. Therefore, the simultaneous trigger will allow senior employees, unwilling to be retrained, to take the early retirement and move on.

3. The Lower Replacement Wage will help Hire More New Graduates – By sheer longevity, the retirees usually command some of the industry's highest salaries. Since the new graduates would be hired at significantly lower wage levels, the replacement ratio might be higher, perhaps three new hires for every two persons retiring. Even if a small percentage of this group, say 20%, is enticed to retire at 62 every year, an unprecedented job boom would be in the offing. Now, add the higher replacement ratio to it, and it's an unparalleled boom plus!

4. The New Generation of Early Retirees will significantly Boost Leisure, and Recreational (Adult Lifestyle) Industries – The creation of this new generation of early retirees with significant disposable income will provide a big boost to the leisure/travel and recreation industries as a whole. From vacation homes to new cars to hospitality to airlines to Amtrak to cruise-lines to recreation vehicles (RVs), etc. will all benefit from this new-found economic class. The arrival of early retirees might help smooth out off-peaks leading to year-long consistent and predictable traffic patterns.

5. The Job Boom among Millennial and early-Gen Y will provide a Gigantic Boost to their Lifestyle Industries – While the early retirees will bolster spending in Leisure, the counter-story could be as exciting as well. Considering the millennial generation and early-Gen Y (born between 1995 and 1999) will fill in the vacancies to be left behind by their senior counterparts, their enhanced spending power will be a big boon to the (trendy) lifestyle industries like techs and gadgets, fashion and professional garments, alternative health and beauty, etc. The housing industry will see the beginning of a new replacement cycle.

Fast-growing mid-range companies do not necessarily compete for the top talents as they are generally competed away by the large-cap companies. This new job boom, resulting from the departure of early retirees, will see massive growth in high-paying career jobs, potentially trickling down to mid-to-smaller companies over time, making them more competitive in the global marketplace. 

The higher replacement ratio -- three new entrants for every two retirees -- will most probably make the program revenue-neutral, if not revenue positive, but cost-sharing could help manage any temporary shortfall. Early retirees would be responsible for part of the additional Medicare costs as cost-sharing; for example, 15% pass-through at 62, 10% at 63 and 5% at 64, etc.. Even if it comes down to some cost-sharing, it would still be a far better option than the COBRA or individual insurances. On the positive side, in a cost-sharing event, the participating HMOs (most likely) might offer to pick up the tab to shore up their enrollments. 

Again, since the pandemic is expected to reshape our lifestyle, especially the 60+ population in this country, Congress should seriously consider lowering the Medicare Age to 62. It's a no-brainer!

#MedicareAt62

- Sid Som, MBA, MIM

homequant@gmail.com

Lowering Medicare Qualifying Age to 62 will Entice Early Retirement

While the first qualification age to trigger Social Security benefits is 62, the qualifying age for Medicare is 65 (certain exceptions are there: qualifying by disability; SS-eligible spouse turning 62, etc.), thus forcing millions of willing retirees to wait until the Medicare to kicks in at 65, without having to walk into the expensive COBRA/health insurance trap. 

Therefore, the Federal Government must seriously consider lowering the Medicare age to 62 for all SS-eligible employees to allow and incentivize early retirement. So, what are the potential advantages? Let's consider these:

1. The Simultaneous Trigger of Social Security and Medicare at 62 will allow Willing Employees to Retire from "Full-time" Workforce at 62 – This will free up millions of jobs. Again, in order to qualify for the proposed "Medicare at 62" one must simultaneously trigger the SS benefits at 62, thereby ensuring permanent retirement from the "full-time" workforce. Of course, if one decides to return to the full-time workforce at a later date, one must return all of the benefits earned (in line with the current SS law). In fact, in order to reduce experimentations with early departures from the full-time workforce, an additional (post retirement) surrender penalty could be assessed on both, thus minimizing the possibility of the system being gamed as a temporary make-shift retirement mechanism.

2. The Simultaneous Trigger will Open up Millions of Jobs for New Graduates – Since most people retire from "long held" jobs, those jobs tend to be "career" jobs. Most companies try to fill the long-term career jobs with new graduates, via their 1-to-3 year training programs (e.g., engineer trainee, management trainee, analyst and research trainee, marketing trainee, etc.), with the objective of indoctrinating the candidates into their unique corporate cultures. When the new graduates go through these structured training programs, they become more knowledgeable and visionary employees, generally with long-term association with their companies. Also, in today's fast-changing technological environment (as AI and Robotics have already taken over), the new engineering graduates are far more critical for the labor force than their senior counterparts as most of whom would need vast re-training. The simultaneous trigger will, therefore, allow senior employees, unwilling to be retrained, to take the early retirement and move on.

3. The Lower Replacement Wage will help Hire More New Graduates –

By virtue of sheer longevity the retirees usually command some of the highest salaries in the industry. Since the new graduates would be hired at significantly lower wage levels, the replacement ratio might be higher, perhaps 3 new hires for every 2 persons retiring, etc. Let's not forget that baby boomers still comprise the largest generation (of course, the millennial generation is expected to outnumber the baby boomers by 2020), making the congestion and the resulting relative strength of this age group (meaning the number of employees comprising this age group of 62 to 65 relative to the competing groups on the labor force) simply enormous and powerful. Even if a small percentage of this group, say 20%, is enticed to retire at 62 every year, an unprecedented job boom would be in the offing. Now, add the higher replacement ratio to it and it's an unprecedented boom plus!

4. New Retirees needing to Supplement Social Security Incomes will still have access to Part-time Jobs to be Vacated by New Graduates –

From time to time, it may so happen that a small percentage of these retirees might need to supplement their social security incomes with part-time jobs. Just the way these retirees would pave the way for millions of high-paying career jobs, they would have access to tons of the part-time jobs the new graduates would leave behind, leading to a very healthy and complementary continuum. Given the wealth of knowledge and expertise these retirees are bestowed with, a sizable percentage might even consider part-time teaching and training jobs, a vast majority of which would otherwise remain perennially unfilled, especially in the rural areas.

5. Housing in Sunbelt will be Big Beneficiary of the New Beginning of the Early Retirement – To escape the high cost of living in big metropolitan areas, a big percentage of these retirees will move to the sunbelt, creating a new housing and economic boom there. Undoubtedly, the housing construction, including the adult retirement communities, would be the single biggest beneficiary of the influx of new retirees. Retirees are not known to be flippers and gamers of housing so their arrival would not force the house prices to skyrocket assuming, of course, the new construction keeps pace with the growth in retirement population. Likewise, as the early retirees leave the major metropolitan areas the housing trade-up would accentuate, welcoming the arrival of the new entrants into the labor force, with plenty of start-up housing to choose from. 

6. The New Generation of Early Retirees will significantly Boost Leisure and Recreational (Adult Lifestyle) Industries – The creation of this new generation of early retirees with significant disposable income will provide a big boost to the leisure/travel and recreation industries as a whole. From vacation homes to new autos to hospitality to airlines to Amtrak to cruise-lines to recreation vehicles (RVs), etc. will all benefit from this new-found economic class. Better yet, their presence will wholesomely complement the leisure and vacation industries; for example, airlines, hotel chains and cruise-lines that heavily discount their off-peak inventories may not be forced to the old marketing practice anymore, meaning the arrival of early retirees might help smooth out off-peaks leading to year-long consistent and predictable traffic patterns, with big growth in revenue and enhanced profitability. Medicare-participating HMOs and AARP will also see a big growth in membership populations.

7. The Job Boom among Millennial and early-Gen Y will provide a Gigantic Boost to their Lifestyle Industries – While the early retirees will bolster spending in leisure, the counter story could be as exciting as well. Considering the millennial generation and early-Gen Y (born between 1995 and 1999) will fill in the vacancies to be left behind by their senior counterparts, their enhanced spending power will be a big boon to the (trendy) lifestyle industries like techs and gadgets, fashion and professional garments, alternative health and beauty, etc.  The housing industry will see the beginning of a new replacement cycle: many older homes, subject to local zoning and variances, will be replaced by the trendy multifamily; downtown revitalization will get massive boosts; the traditional suburban homebuilders will fight for a piece of the fast-expanding urban housing pie, etc., the sum-total of which will contribute to a new economic and cultural boom in urban areas. Atop this boom, the early-Gen Y's entry into corporate America will be the new silver lining.  

8. Fast-growing Mid-range Companies will Finally get to Compete for Top Talents – Fast-growing mid-range companies do not necessarily get to compete for the top talents as they are generally competed away by the large-cap companies. This new job boom, resulting from the departure of early retirees, will see massive growth in high-paying career jobs, potentially trickling down to mid-to-smaller companies over time, making them more competitive in the global marketplace. While the lack of modern technical skills in our workforce originally paved the way for the H-1B foreign workers, the arrival of the new home-grown STEM graduates will greatly reduce the need for those foreign workers going forward. In order to nurture the massive young talent pool, most companies will return to the traditional long-term training programs, allowing young talents to adapt to their unique (corporate) cultures. Companies armed with better trained and modernized workforces will be more innovative and productive, resulting in significantly lower turnovers.

9. Higher Replacement Ratios will Make the ‘Medicare at 62’ Program Revenue Neutral, but Cost-sharing could be an Option to Make up any Temporary Shortfall – The higher replacement ratio -- three new entrants for every two retirees (studies needed by the GAO) -- will make the program revenue neutral, if not revenue positive, but a cost-sharing could be an option to manage any temporary shortfall could be passed through to the retirees by way of cost sharing (for example, 15% pass through at 62, 10% at 63 and 5% at 64, etc.). Even if it comes down to some sort of cost sharing, it would still be a far better option than the COBRA or individual insurances. On the positive side, in the event of a cost sharing, the participating HMOs (most likely) might offer to pick up the tab to shore up their enrollments. 

Congress should seriously consider lowering the Medicare Age to 62. It's a no-brainer!

- Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book